Buying a home together … sans marriage

It’s not surprising that 24 percent of unmarried millennial couples are buying a home together before marriage. Both men and women have grown more comfortable with the idea of living together before marriage, and the majority see it as a step toward preventing a future divorce, according to the National Survey of Family Growth.1 ,2

Assuming the couple does marry, the home purchase will look like another step in the natural progression of their relationship. But if they break up instead, untangling finances and home ownership stakes can be a real headache.

Why unmarried couples buy homes together

Couples are getting married later in life than they used to — often in their mid to late 20s — but they may be impatient to become homeowners for several reasons:3

If living together in an apartment has worked out, it might seem logical to graduate to home ownership when the lease is up. A Time magazine survey found that 37 percent of millennials think buying a home together should come before getting hitched.4

Mortgage rates have been at record lows for years, helping to make home ownership affordable. Some think it’s good to buy now and lock in a low rate, as interest rates are beginning to nose up.

In expensive areas, it commonly takes two incomes to buy a home.

According to a December 2014 survey by real estate company Redfin, 38 percent of millennial couples think their money is better spent on a down payment than on an expensive wedding.5

These are not flawed reasons for wanting to buy, but unmarried couples may not fully understand the risks; risks that are in addition to the typical financial considerations any newly married or committed couple might face. (Learn more: Marriage and finances: A to-do list )

Buying a home with a partner is risky

“Buying a house is the biggest financial commitment you’ll ever make, no matter what your marital status is,” said Valerie Rind, author of the award-winning book “Gold Diggers and Deadbeat Dads: True Stories of Friends, Family, and Financial Ruin,” in an interview. “It’s a major risk to take this social, legal, and financial plunge with someone you don’t have a long-term commitment with.”

Living together in an apartment is not the same as living together in a house. The latter comes with many more expenses and responsibilities that could strain your relationship in a way you are not anticipating, leading to a breakup.

Adam Long, national account executive at Residential Acceptance Corp., a wholesale mortgage lender, strongly suggests not buying a home with a co-borrower who is not a spouse because of the possible long-term harm to your finances if the relationship ends.

If one partner loses their job and cannot make the mortgage payments or pay the property taxes, the result can be foreclosure, which is expensive and hurts your credit, Long said in an interview.

And partners who cannot agree on selling the property after a breakup may resort to the court system for help — also very expensive, he said.

If both partners are on the mortgage, either can be held responsible for the entire sum. If one partner stops contributing due to a drop in income, the other must pick up the slack — and they may not be willing or able to do so.

“My experience has been that romantic couples should not buy real estate together before marriage. The risks simply outweigh the upsides,” said real estate investor Brian Davis, cofounder of SparkRental.com, a site that helps landlords automate rental property management.

“Unmarried people should buy real estate singularly, and if they wish to add a spouse to the deed after marriage, it can be done quickly and cheaply,” Davis said in an interview. “Before I married my wife, I bought a house by myself. She moved in, she paid me rent, and when $1,500 repair bills came up, I was the one who paid. Once we were married, I added her to the deed, we set up a joint bank account, and started paying for repairs and maintenance costs out of our joint account.”

Unmarried couples should avoid putting the title in both of their names if the mortgage is only in one partner’s name. One person should not assume all the financial risk unless they will be the home’s sole owner.

What happens to the house if you break up?

“Moving out of a rented apartment when you break up might be painful, but it’s a whole lot less complicated,” Rind said.

“Unless you have substantial cash reserves, it’s unlikely you’ll be able to buy your partner’s interest in the property if you want to keep it,” she said. “If you both want to sell, you’ll be forced to agree — at a time when you’re probably not agreeing on anything else — on major details like the sales price you’ll accept. Plus, houses don’t sell overnight, so you could easily be tied up with the transaction for many months.”

Selling could be especially difficult if, at the time of a breakup, the home is worth less than it was when the couple bought it. The couple may not have the money to make up the shortfall.

Davis said a close friend bought a second home with a girlfriend, and when they broke up 18 months later, “she at first agreed to pay a third of the mortgage and have access to it a third of the time. But it quickly became tedious and unpleasant for them to keep contacting each other constantly to discuss usage, bills, etc.,” he said.

“It's tempting for unmarried couples to buy homes together when the individual partners may not be able to qualify for a mortgage alone,” Davis said. “But any couple where one partner can’t qualify on their own should wait until they’re married before buying.”

Buying when unmarried: The right way

Unmarried couples who are determined to buy a home together despite what could go wrong can mitigate the risks.

Know your partner’s finances . Kathryn Dickerson, a family law attorney and partner at SmolenPlevy, a law firm in the D.C. suburb of Vienna, Virginia, said in an email exchange that both partners need to know about each other’s debts and spending habits, since any judgment against one partner can be recorded against the home.

If one partner gets into debt and can’t repay creditors, the creditors can sue. If they win the right to place a judgment against the debtor’s assets, such as the home, then the home cannot be sold or refinanced unless the debt gets repaid or the debtor gets the judgment removed after filing for bankruptcy.6

In a worst-case scenario, if state law does not consider your home exempt property from a creditor’s judgment and if the creditor has a lot of money at stake, they could force the home’s sale to collect the debt.7

Decide how to hold title. For unmarried couples, there are three ways to hold title, or legal ownership, of a property. One person can own the whole property. Both partners can own the property as joint tenants with rights of survivorship, which means that two people share equal ownership and if one dies, the other becomes the property’s full owner. Tenancy in common is for partners who want to own unequal shares of the property or who do not want their ownership share to automatically transfer to their partner if they die. 8

Plan for the worst. “Too often when this issue is raised, the young people think only about what will happen if they break up — they don’t consider what might happen if someone were to die,” Dickerson said.

If the couple owns the property as tenants in common, the deceased partner’s ownership share will not pass to the other partner unless it is specified in the will. If there is no will or if the deceased partner has named other heirs, ownership will pass to those heirs or by their state’s intestacy law, creating a cumbersome situation where the surviving partner co-owns a home with someone they never intended to. The ownership change can get especially messy if the surviving partner has a lesser ownership share. (Learn more: Wills and the basics of estate planning )

Create a cohabitation agreement. “If you’re sure you want to buy a property together even though you’re not married, get proper legal advice first,” Rind said. “Each of you should consult with a separate qualified lawyer in your jurisdiction about how to document the ownership and financing details and whether you need a cohabitation agreement.”

A cohabitation agreement may not be romantic, but it is highly practical. It spells out how much each partner will pay toward the mortgage, utilities and other household expenses; how each partner will share in changes in the home’s value; who will have rights to other property acquired jointly (such as furniture and pets); and what will happen to shared property in the event of a breakup. It can also be a good litmus test; if you cannot agree on this document, you may not be not ready to jointly own a home.9

All of these considerations, of course, come against the general backdrop of whether you are ready to apply for a mortgage and buy a house in the first place. You and your partner should have some level of appropriate income as well as job security before considering a home purchase. In addition, you need to consider locations, the type of home you both want to buy, and what kind of mortgage will fit your finances. ( Related: Buying your first home )

Indeed, talking through these basics of what kind of home to buy and gathering the appropriate paperwork for a mortgage application will be a good starting point for examining whether or not a home purchase is right for your relationship, married or not.

Remember, mortgages come in a variety of payment plans and time commitments. Discussing those options (a 30-year mortgage is a standard vehicle) opens the door for what may be a deeper discussion of commitments, relationships, and even marriage.

One of our financial advisors can contact you to discuss taking care of loved ones, a family business, or a group of employees.

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.

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